by Ian Harvey
IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!
You may also wish to read Stock Options Made Easy Trading PhilosophyALSO
Options Trade – ReneSola Ltd. (NYSE: SOL) Calls
Thursday, January 28, 2021
** OPTION TRADE: Buy SOL MAR 19 2021 25.000 CALLS at approximately $7.40. (Max. $8.00)
NOTE: The stock is down pre-market so you should be able to enter the trade cheaper than that indicated!
Place a pre-determined sell at $14.80.
Also include a protective stop loss of $3.00.
Clean-energy companies are raising record amounts of cash through stock offerings in what could be their biggest funding opportunity ever as U.S. President Joe Biden moves to implement his climate agenda.
The flood of stock offerings comes as Biden pushes to fully green the country’s electrical grids by 2035 -- and as investors seek out companies that meet their ESG benchmarks. These trends have sent share prices of clean-energy companies soaring, and now they’re cashing in.
“This is not a window that’s going to close and then we’re back to business as normal,” said Joe Osha, an analyst at JMP Securities. “You’re seeing some big, big fundamental shifts in how equity markets allocate capital.”
And ReneSola Ltd. (NYSE: SOL), a solar developer, has announced two offerings.
ReneSola announced it was selling 10 million American depositary shares at $25 apiece in a deal that's expected to close on or about Jan. 27, 2021. Proceeds are expected to be around $250 million, which ironically is more than the company's entire market capitalization as recently as October 2020.
Management is clearly taking advantage of the high price of solar energy stocks right now to raise funds for the future. Just two weeks ago, management closed on a $40 million capital raise at $16 per share.
But, shares of solar developer ReneSola fell as much as 25.4% in trading on Monday after announcing the large share offering; and continue today.
However, this allows us a great opportunity to get into this option trade at a much lower price.
Even management thinks ReneSola's shares are so highly valued that it's too good to pass up. The company doesn't really need the cash with the recent capital raise already completed, but if the market is going to enable management to raise capital that could grow the business then it will take advantage of that.
About ReneSola …..
ReneSola Ltd., through its subsidiaries, develops, builds, operates, and sells solar power projects.
It operates through three segments: Solar Power Project Development, EPC Services, and Electricity Generation Revenue. The company also develops community solar gardens; and sells projects rights.
In addition, its engineering, and procurement and construction business includes engineering design, procurement of solar modules, balance-of-system components and other components, and construction contracting and management services.
ReneSola (NYSE:SOL) last posted its earnings results on Monday, November 30th. The semiconductor company reported $0.04 earnings per share for the quarter, topping the consensus estimate of $0.01 by $0.03. The firm had revenue of $9.75 million during the quarter, compared to the consensus estimate of $9.90 million. ReneSola had a negative net margin of 12.12% and a positive return on equity of 6.09%. During the same quarter last year, the company earned $0.06 earnings per share.
ReneSola is scheduled to announce its next earnings report on Friday, March 12th.
Wall Street brokerages forecast that ReneSola will announce ($0.01) earnings per share (EPS) for the current quarter. ReneSola posted earnings of $0.09 per share during the same quarter last year, which would suggest a negative year-over-year growth rate of 111.1%.
Also, analysts predict that ReneSola will report $24.56 million in sales for the current quarter. ReneSola posted sales of $26.53 million during the same quarter last year, which would indicate a negative year-over-year growth rate of 7.4%.
Joe Biden's victory and the subsequent Democratic senator victories in Georgia in early January potentially rolled out the green carpet for renewable energy providers in the U.S. President Biden has made clear that his administration will focus on cleaner energies. ReneSola has more project capacity potential in the U.S. than any other country worldwide.
ReneSola has been raising capital. Having ended the September quarter with only $15.6 million in cash and cash equivalents, ReneSola has completed two direct share offerings in a matter of weeks, totaling $20 million and $40 million, respectively. The company also sold two solar parks in Romania totaling 15.4 megawatts in December. In other words, cash isn't as big of a concern as it was three months ago.
ReneSola looks to be capitalizing on a short squeeze. Between Nov. 30 and Dec. 31, the number of shares held by short-sellers (investors who profit when the share price falls) had quadrupled to 2.88 million. Since short-selling losses are unlimited, and these pessimists are forced to borrow from their respective brokerages, they may be getting "squeezed" out of their money-losing positions. In order to exit their position, short-sellers must buy to cover, which further propels the stock higher.
ReneSola has concentrated its attention on areas in which project profit margins are highest, and it's built up a strong market share in some key areas of Eastern Europe, as well as U.S. states such as New York and Minnesota.
ReneSola has had plenty of interest in solar projects, and 2021 has already brought a big one. A potential joint venture with a European asset management firm will allow ReneSola to finance upcoming projects across Europe.
ReneSola has a 52-week low of $0.85 and a 52-week high of $35.77. The stock has a 50 day moving average of $13.41 and a 200 day moving average of $5.44. The company has a debt-to-equity ratio of 0.33, a current ratio of 0.99 and a quick ratio of 0.99. The company has a market cap of $1.28 billion, a PE ratio of -152.49 and a beta of 2.62.
2020 was a good year for solar stocks, and ReneSola was a top performer. The stock moved higher by more than 700% last year, and as you can see above, it's getting another push higher in 2021.
Options Trade – Magnite Inc (NASDAQ: MGNI) Calls
Monday, January 25, 2021
** OPTION TRADE: Buy MGNI MAR 19 2021 40.000 CALLS at approximately $7.40. (Max. $7.80)
Place a pre-determined sell at $14.80.
Also include a protective stop loss of $3.00.
Magnite Inc (NASDAQ: MGNI) is now the world’s largest sell-side platform (“SSP”) for buying and selling advertising inventory available across multiple channels, including mobile, desktop and CTV.
Magnite experienced demand erosion in 2020 as the global pandemic resulted in reduced ad spending. However, revenues have started to re-accelerate, and the share price has been rebounding dramatically off 2020 lows. What’s more, there is a massive total addressable market opportunity ahead.
Revenue is generated in the form of service fees which are calculated as a percentage of the total amount of volume transacted on its platform, also known as the take rate. Magnite also generates revenue from fees charged for its Demand Manager product offered to ad publishers. Demand Manager offers configuration tools and analytics to publishers to better optimize and effectively monetize their ad inventory.
Channel-wise, Mobile ads contribute the largest share of overall revenue at 48%, whereas Desktop and Connected TV contribute 34% and 18% respectively.
Magnite is a "sell-side" advertising technologist. Publishers use its platform to make money on their content, listing ad slots for buy-side advertising intermediaries to peruse on behalf of their customers. For example, if a TV show publisher decides to make a 30-second ad available during a commercial break, the company could list it with Magnite to make that slot available for purchase from an advertiser. As a sell-side service for CTV and other digital outlets, Magnite is the largest independent name in the industry -- a product of a merger between Rubicon Project and Telaria earlier last year.
The combined company unified Rubicon Project’s expertise as a programmatic exchange and Telaria’s CTV capabilities. New York-based Telaria was formed in 2017 as a rebrand of Tremor Video, after the latter sold its demand-side business in 2015. The SSP is a connected TV specialist, powering Hulu's private marketplace.
Los Angeles-based Rubicon Project was founded in 2007 and operated one of the world's largest ad exchanges.
Magnite will offer a single platform for transacting CTV, desktop display, video, audio, and mobile inventory across all geographies and auction types. The combined company has more than 600 employees across 15 countries.
Rubicon Project president and CEO Michael Barrett became chief executive and president of Magnite. Former Telaria CEO Mark Zagorski, who became president and chief operating officer of the merged company, left in June.
Barrett said: “Uniting our rich technology, experience and partnerships under the Magnite brand brings us closer to being an essential partner for publishers and buyers. Now, more than ever, our industry needs an independent alternative to the walled gardens. At Magnite, we believe that collaboration is the path to a thriving ecosystem that works for everyone.”
The company emphasized its independence in the release announcing its rebranding, saying that since it "doesn’t own any media interests, it can provide unconflicted guidance to publishers paired with exceptional client service".
Magnite successfully reported an adjusted EBITDA gain of $13.7 million in Q3 (after reporting a loss of $3.5 million for Q2 2020, as compared to a gain of $5.4 million in Q2 2019 for the combined entity). The return to positive adjusted EBITDA is a result of revenue rebounding (post-pandemic) and cost synergies from the merger.
Also important, Magnite has a robust balance sheet with liquidity of $103.8 million at the end of the most recent quarter. Given that the company does not carry any debt, we believe the current cash position provides enough cushion for Magnite to navigate through the recovering economic environment.
Magnite will announce its financial results for the quarter ended December 31, 2020 after the market close on Wednesday, February 24, 2021.
Magnite expects its fourth-quarter revenue to be in the range of $72 million to $75 million. That represents a growth of between 18% and 23% quarter-on-quarter. The company also expects adjusted EBITDA margin to reach approximately 30%. That’s a sizable jump from the 23% figure it achieved in Q3 2020. Analysts are expecting Magnite’s revenue to rise by 37% this year. They also expect the company to generate non-GAAP earnings per share of $0.01 this year. The company could be on track to record more sustainable earnings going forward.
Going forward, CTV is expected to be the major growth driver for Magnite as it continues to expand at a much faster rate in comparison to both mobile and desktop mediums. While geographically, the US is the largest market for Magnite contributing 74% of the top line, the company has made considerable progress in expanding into international markets in the last few years.
Digital advertising has experienced strong structural growth over the last few years and is expected to continue its upward trajectory in 2021 (after a temporary setback in 2020 due to the coronavirus pandemic).
US digital ad spend totaled $132 billion in 2019 and was expected to increase to over $225 billion by 2024.
Recently, an estimated 86.3% of US digital display ad dollars were to be transacted using programmatic advertising technology which is estimated to expand further in the years ahead.
Magnite has recovered to a large extent after adjusting its business model to the changing competitive environment. According to former CEO Frank Addante, during the Q4 2016 earnings call:
“Even though with the header bidding piece is quite a little bit of a hiccup for us, our ability to turn that around so quickly, I think it makes us more bullish about our ability to continue to deploy new products in the market in the future.”
The ad tech industry is on the move again with rise of Supply Path Optimization (SPO). Supply path optimization (SPO) is a process through which a DSP narrows down the number of SSPs it wants to transact with to only those SSPs that offer most efficient and cost-effective path to securing ad inventory. Magnite, being one the largest sell side platform that carries ad inventory in all the four channels of digital media, including CTV, is well placed to make significant gains from this structural shift in programmatic advertising industry.
Post-merger with Telaria, Connected TV will be a key growth driver for Magnite. Faster internet speeds through the development of 4G and 5G have resulted in more digital content being viewed through TVs connected with the internet as compared to cable sets.
CTV is the fastest growing digital platform and Telaria (part of Magnite) being a market leader is poised to benefit from the structural growth. In fact, in Q3 2020, Magnite experienced accelerating revenue growth of 51% in its CTV business on a YoY basis.
Craig-Hallum analyst Jason Kreyer cited confidence in near-term opportunities at Magnite and the acceleration of CTV this year as catalysts for the higher price target - Craig-Hallum reiterated its Buy rating and nearly doubled its price target from $25.00 to $45.00. Kreyer believes that the company is well positioned to capitalize on the CTV shift given its relationship with The Walt Disney Company (DIS), spend consolidation, direct-to-consumer (DTC) relationships, and an accelerated return of ad spend.
eMarketer believes that programmatic advertising on CTVs rose more than 50% year over year to $6.73 billion in 2020 and could hit $8.7 billion in 2021. These growth rates could help boost Magnite and many other companies in the CTV space.
Madison Funds, an independent employee-owned investment firm, published its third-quarter Madison Small Cap Fund. Madison Investments in their Q3 2020 Investor Letter said that they grasped the value of Magnite and was able to stock shares of the company.
"Although finding new ideas in technology was difficult given the high valuations we’ve already discussed, we initiated on a new investment position in advertising technology platform Magnite (MGNI). Magnite’s stock price had declined from a pre-pandemic high of around $13 in February, down to a low of $4 in March. Unlike ETSY, MGNI’s business is not simple. Their core offering is a platform for independent digital ad publishers. Independents are separate from Facebook or Google, which are walled gardens. They use Magnite to offer their inventory in a programmatic (meaning non-manual) fashion to digital advertisers. Magnite is therefore a supply side platform (SSP). Although MGNI is now the largest SSP, the space is highly fragmented. In addition, MGNI has the lowest cost, highest scale platform, with a strong, cash rich balance sheet. Advertisers want to work with a fewer number of SSP’s and the smaller scale SSPs do not have the scale nor the financial might to compete especially during this unusually difficult economic time for advertisers. This puts MGNI in the ideal position to consolidate the industry. Through our conversations with management and industry participants, we believe MGNI can at least double its size over time as it executes on this consolidation strategy."
MGN has been the subject of several other research analyst reports.....
Susquehanna initiated coverage with a positive rating and a price target of $30. That represented 50% upside at the time. Analyst Shyam Patil said Magnite was the top independent supply-side platform in ad tech, and said its opportunity in connected TV (CTV) was particularly strong. He also credited the company's supply relationships for putting it in the leadership position in its niche.
Three days later, Needham had similar praise for Magnite, driving the stock up another 12%. Analyst Laura Martin maintained her buy rating on Magnite and raised her price target from $18 to $30. Martin noted a number of tailwinds for the company, including a rebound in the macro economy, the expanding connected TV market, and strong fundamental momentum. The stock surged again on Dec. 23 after Martin called Magnite her top pick for 2021 on CNBC.
Revenue is accelerating, and connected TV is outperforming all other digital channels. And although the company has been experiencing challenging quarters, expect Magnite to experience strong growth as a result of adoption of supply path optimization processes by DSPs and secular growth in CTV.
Specifically, Magnite’s expected 26.3% sales growth rate in 2021 is strong, but lags higher expected rates for Roku and The Trade Desk, but Magnite also trades at a significantly lower price-to-sales ratio, and continue to have attractive long-term growth opportunities well beyond 2021. Again, these businesses are not the same, but the comparison is meaningful in the sense they all have high growth rates and are connected to the CTV opportunity.
The company has a 50 day simple moving average of $25.84. The stock has a market capitalization of $3.85 billion, a P/E ratio of -56.39 and a beta of 2.45.